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I’m planning to buy my first house this year, I have a deposit saved and have just started looking at properties.
I am currently renting but will be moving soon as the landlord will only be renewing the lease for a fixed term of one year which I don’t want to commit to given my purchase plans.
A family member has kindly offered to let me stay with her rent-free for a few months until I buy. If I accept it, I’ll be able to save a little more, but the move will also require a long and expensive train ride to work.
That said, I would be very grateful to not have to worry about timing my purchase with the end of the lease.
On the Ladder: Our reader is currently renting and interested in buying his first home, but in the meantime he will be living with his family and is concerned this could affect his credit score.
While my total expenses won’t change much, what I spend the money on will be drastically different and I’m wondering if this would affect my mortgage application.
I’ve been paying rent for the last 15 years and suddenly I wouldn’t be paying anything, even though I’d obviously be contributing to the bills and food.
On the other hand, my transportation expenses would quadruple temporarily, but would be greatly reduced once I moved to my new home.
Is this something that would concern a mortgage lender? I also won’t be listed on any of the household bills, so could this cause problems with credit checks and proof of address?
Should I get a mortgage in principle before or after moving out of my rented home?
Ed Magnus from This is Money responds: Mortgage applications can be daunting, especially when you are new to the experience and may not be sure what boxes you need to check to be successful.
After you’ve done all the hard work saving for a deposit, being turned down for a mortgage because of a “computer says no” algorithmic error caused by a temporary change of address or circumstance would be a kick in the teeth, to put it mildly.
The reality is that mortgage lenders turn away first-time buyers for all sorts of reasons.
Problems related to credit history and not being on the electoral roll are two of the reasons that could cause an application to be rejected.
A poor credit score or history raises alarm bells for lenders because they want to make sure you will be a reliable borrower.
When applying for a mortgage, the lender will usually want to see proof of identity and address. For example, a scanned passport and a utility bill.
They will also want to see your most recent bank statements, as well as your most recent pay slips if you are employed or your most recent two or three years of tax returns if you are self-employed.
Lenders will want to see that the information shown on these documents matches. If the addresses are different, that could cause a problem, although living with family is not uncommon among first-time buyers and is a situation that can be explained fairly easily.
To help better advise our reader, we spoke with Karen NoyeQuilter mortgage expert and Nicolas Mendesmortgage technical director of the broker, John Charcol.
Will your travel expenses be a problem?
Karen Noye says lenders will take future changes in circumstances into consideration
Nicolás Mendes responds: No, lenders take your future circumstances into consideration.
As your travel will be cheaper once you move into the property, the lender will accept reduced travel costs as part of their affordability assessment.
Karen Noye responds: Lenders take expenses into account and some use ONS data to look at averages, while others ask for specific amounts such as council tax costs, insurance and travel costs.
Where your travel costs will be reduced by moving as a result of being closer to work, the lender will take this into account when assessing affordability and tend to look at the purchase address in relation to your work address to check it is feasible.
Additionally, applications will require the last three years of your address history, so you will have the opportunity to provide full notes within your application about your circumstances, why your travel costs have increased, and that the move will mean you will be closer to go back to work. and therefore reduce costs in the future.
Lenders are usually happy with this level of explanation, but may sometimes require additional information or proof.
What happens if it is not mentioned on any household bill?
Nicholas Mendes warns that not updating address records could affect your credit history and hinder your application
Nicolás Mendes responds: When you move to a new address, even temporarily, it is important to make sure your banking, voter registration, and driver’s license records are up to date.
Failure to update key records could affect your credit history and hinder your application.
Lenders generally require your address history for the last three years as part of their evaluation.
Karen Noye adds: Once you have moved to your new address, even if it is temporary, it is important to make sure you update your address as soon as possible with your employer and bank, as well as any financial agreements and the electoral roll, among others.
In terms of credit checking, if your address is updated immediately, you will be able to use a bank statement as proof of address.
Not all household bills appear on credit files, as it depends on the provider, and there are other ways to help build or maintain your credit score, such as properly managed credit cards.
When should they get their agreement in principle?
Karen Noye responds: If you get an agreement in principle from time to time and then move, you will need to inform the lender and the lender will rerun the credit check because this is a material change in your circumstances.
Therefore, I would suggest waiting until you have moved in, unless you are looking to make an offer on a property in the immediate future.
If you’re initially applying for a mortgage before you move, it’s important to let your broker or lender know once you do.
Check: A poor credit score or history raises alarm bells for lenders because they want to make sure you will be a reliable borrower.
Nicolás Mendes adds: I would recommend to any potential buyer to reach an agreement in principle immediately.
Knowing how much they can borrow can help ensure they are looking for the right properties that fit their budget, but also alert them to any issues that limit their ability to get the property they want.
How important is your credit score?
Nicolás Mendes responds: Your credit score and history are incredibly important factors when applying for a mortgage, as they tell lenders how likely you are to repay the money they loaned you.
Mortgage lenders typically look at reports from any of the three major credit reporting agencies: Equifax, Experian and TransUnion.
How can they improve it?
Nicolás Mendes adds: If your credit score is not up to par, you should try to improve it over time.
You can do this by registering on the electoral roll, making payments on time, reducing your existing debt, and checking your credit report for errors and disputing any inaccuracies.
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